Rising oil prices threaten to erode mining sector`s profitability

Mining News Pro - Rising oil prices are the latest challenge to the mining sector`s profitability, threatening to eclipse hard-fought efficiency gains during the past two years and increasing metals demand.

The concern is especially acute forundergroundminers, withpowerand labor costs about two-thirds of their expenses.

Let`s be clear: Inflation is going to hit – is hitting all communities and all players across the industry,"Rio Tinto CEO Jean-Sébastien Jacquestold investors earlier this week after the company`s profit for the first half of the year missed estimates.

Rio Tinto said in its half-year results that inflation was a growing concern, flagging cost increases for contractors,energyprices, and inputs at its aluminum division such as pitch and coke.

Glencore CEO Ivan Glasenberg in February flagged "emerging inflationary pressures," but then said the company could offset them through sales of expensive byproducts, such as cobalt. But cobalt prices have fallen roughly 30% on demand concerns, further challenging the industry.

Other metals prices have also weakened as well, withgolddown 6% in the last year,copperdown 3% and silver down 8%.

The miners are all insistingfinancialdiscipline will keep them resilient despite inflation.

Anglo American in July said it was going ahead with a new copper project in Peru. The company has curbed costs by selling a bigger stake to its Japanese partner Mitsubishi Corp.